Bitcoin: Enabler for the IoT?

There’s no question that Bitcoin has gone mainstream, although many people still associate the decentralized digital currency solely with criminal activities on the dark web. However, more and more established corporations and well-known investors are getting interested or even involved in Bitcoin businesses.

It’s hard to nail down precisely what Bitcoin is because it has so many facets. Bitcoin is a protocol, a network, and an open source software platform. Its main value proposition is transferring money instantly over the Internet without the need for a central authority – just as e-mail (or spam!) does for information.

Well, what’s that got to do with the Internet of Things?

We at the Bosch IoT Lab view the IoT as a system where “… virtually every physical thing in this world can also become a computer that is connected to the Internet”. When thinking (and writing) about business models for the IoT, this quickly leads to the idea that “virtually every physical thing” can become an autonomous actor in a worldwide data market. “Market” implies that data is being exchanged for money, right?

Let’s take an example: some organization installs a nationwide network of sensors to detect the availability of parking spaces. The infrastructure costs a lot of money (it’s nationwide, after all), but the data collected is valuable for many interested parties. As you drive around on your quest for a parking space, you pull up an app and see the real-time data from some 20 sensors.

How do you pay for those datasets? Today, we would think the service provider has a contract with the sensor infrastructure provider. You as the user would have to have a subscription with the service provider, or you would have to “pay” with your personal data while using the app. But there’s another possibility: why not pay the sensor directly for each and every dataset it provides? This is where Bitcoin could be extremely helpful – or even necessary.

Bosch IoT Lab

The Bosch Internet of Things and Services Lab has been formally opened in September 2012. It is a cooperation between the University of St. Gallen and the Bosch Group. Both organizations agree that the cooperation between academia and industry is an ideal setting to explore the opportunities the Internet of Things will provide.

Bitcoin is open to everyone and everything, and thus every sensor can have its own Bitcoin account, at no cost and without human involvement. But how much would an individual dataset be worth? Probably not much; let’s say less than one cent. While I doubt that traditional payment systems would be able to manage this in a cost-efficient way, numerous developers (remember, Bitcoin is open source) are working on micropayment systems using Bitcoin right now.

Do you share that point of view? Or do you think existing money transaction systems can adapt to the scenario outlined above?

16 Comments

26. September 2015 at 17:51

Great article guys. I’m happy to see how you think of leveraging the bitcoin technology for your industry and uses cases. The car should also have a wallet, an embedded mining chip and a microchannel system. Think of a Bosch Bitcoin Car. Similiar to the 21 Bitcoin computer recently launched.

Markus, not sure if this will be the only use case. The BBCC (Bosch Bitcoin Car Component) main function could be enabeling e.g. smart contracts on the Bitcoin blockchain. To use the Bitcoin blockchain the device has to have a tiny amount of bitcoins; allways and by default. Or using the Bitcoin blockchain for automated secure authentication in the IoT world.

Markus, Nice article. The point to be noted is “traditional payment systems would be able to manage this in a cost-efficient way” . All big players (Visa , Master card , Papal) want cost in every transaction let us see how much they can be efficient. Surely this will be the cutting edge financial tool. Love to work in such a project.

I’d assume there are many use cases where you would want added privacy and security (such as a military grade delivery) and these use cases would be subject to data leakage due to Bitcoin’s non-anonymous transaction model. An anonymous system by default would allow for these use cases and allow for you to make information public for regulatory reasons. I was thinking a a coin that uses ring signatures (like Monero) or a Zerocash would be better in interactions where someone would want to keep their thing’s interactions private or where a nefarious or counter group could use data leakage for corporate or military espionage or to intercept drones on delivery for theft or destruction.

Hi Graham, thanks for this interesting comment. I think it depends pretty much on the actual architecture – i. e. the data transmission – how much of a problem this could be. I mean the data itself is not necessarily transmitted through the Bitcoin network. Best Markus

Regulatory developments (e.g. New York licensing framework) don’t appear to have been kind to Bitcoin so the renewed in interest in Bitcoin and the Blockchain technology from banks and systems integrators could well be the case of a solution in search of new markets.

That being said, aren’t there fundamental performance issues with these technologies? Firstly, it used to take several minutes to validate the blockchain (decentralized ledger) which suggests that the system is far from being able to operate in real-time application scenarios. Secondly, the validation process, involving miners, consumes significant amounts of computing resources which is not exactly environmentally friendly (blockchain mining mimics physical mining of gold and all the resources that process requires, including the unsuccessful miners that found no gold).

For all the discussion about decentralized systems such as Bitcoin/Blockchain, readers should not overlook centralized approaches. One such example is the now defunct MintChip, a nano-currency concept that the Royal Canadian Mint experimented with. The underlying theme here was to create a platform to support digital transactions involving tiny amounts of money to open up new markets and business models.

One thing Bitcoin has achieved is a shake up of the regulatory landscape. It is interesting to see progress from Central Banking authorities in the digital payments (Internet of Money!) arena. Interested readers should check out recent publications from the Bank of England and US Federal Reserve’s Faster Payments initiative.

Dear Ken, nice to hear from you again. Thanks for your interesting comments and hints regarding alternative, centralized approaches. Focusing on your last paragraph I´d summarize: – IoT will need means to incentivize data sharing or providing. – Bitcoin adresses some of the relevant questions very well – At least, this draws more and more attention to the debate and prompts the established financial system to innovate. Best, Markus

Hello Markus, I’m glad to see you came up with the same ideas as we did, it shows that there must truly be a concept behind this. Although the groundwork is somewhat really complicated, being capable of deploying any sort of sensor into the world and directly being able to calculate the ROI from this asset could be very helpful to push the IoT to the next level. Currently all techs are playing around with all sorts of new gadgets but very few projects actually come to life. With this, you could easily reason to the business side, why a sensor network would not only be helpful but could actually partly pay for itself. Great thought and very on the spot!

@Pascal I fully agree that the groundwork is the calculation of the ROI. Which is multidimensional – cost-savings, improved customer satisfaction, brand differentiation, all of which can drive increased revenues. On top there will be an ongoing change of the willingness to pay in dynamic environments. In Markus´parking example, what happens if a parking location was attractive for drivers but by external factors like near by competitive offers, retailers moving away, traffic flow changes faces decreased attractiveness. All that will result in the permanent change of the incentive value. Which will brings up the challenge of correct pricing for hardware and the necessary adjustments for micro payments.

while this sure is an interesting idea and there are quite a few pro Bitcoiners that believe that this is a great use case for Bitcoin there are multiple challenges to implement such a system. First and foremost: Bitcoin can’t do that. I’m a huge Bitcoin enthusiast but sub-cent transactions are (currently) not feasible on the Bitcoin Blockchain – a typical transaction has a fee of ~0.0001 BTC (currently 2 cent) to be included in the Blockchain (I also believe that this makes it unfeasible to publish sensor data to the Bitcoin Blockchain – or any Blockchain). There might be solutions (the Lightning network comes to mind – but it has not been tested in the field yet, same for sidechains) but they certainly are (currently) not as easy as handing this of to a traditional micropayment provider (PayPal?) or a centralized Bitcoin Micropayment provider (Coinbase?).

This is a very exciting research field and I would be very happy to see actual implementations of fully autonomous Bitcoin powered units. They units would also be able to autonomously pay the money they “earned” to their respectives providers for power, internet and installation site.

great comment. You’re right on-chain micropayments aren’t economically feasible and will most probably get even more so in the future. Also the exchange of data won’t be on the Blockchain. Today, I think of the Bitcoin Blockchain as a settlement and integrity layer where protocol layers get built on top. A simple example, where implementations are around, are payment channels. These could directly be used to initiate a longer lived pay-per-data connection to a single sensor. In this case you could make thousands of sub-cent payments with just two on-chain Bitcoin transactions. If you need data from thousands of sensors this gets unfeasible as well. But that’s were Lightning Network, Duplex Payment Channels and StawPay could come to the rescue.

We’re still early in the game but the important things to note is that Bitcoin is a protocol where everybody and everything can talk part and Bitcoin is open source evolving together with its ecosystem.

great article and very important concept. I have been looking for micro payment companys for quite some time already – following the question how can we do payment for micro-cents. Just yesterday I have read a report of a start-up in India that does TCP/IP based micro-payments for telcons. But that the solution with Bitcoin is already there I somehow oversaw completely!

Interesting topic not yet explored, but with high potential for the near future. Bitcoin looks like a ‘democratic’ and open solution, but I think micropayments will be eventually achieved through the big players (PayPal, Stripe, etc.) who will realise the potential and jump into the space by providing device-specific solutions for IoT developers. I highly doubt they will embrace Bitcoin for such purpose. However I do believe that the Bitcoin model (and more specifically the Blockchain distributed datastore model) will play an important role in data sharing and data provenance for the IoT data. We are currently working on something similar; it doesn’t matter how your device data is collected, but with whom you share it with.

from my perspective an important aspect for many IoT ideas will be incentives. Why should anybody share data of his privat wheather station with the public? Maybe many do so for the sake of contributing and for profitting from higher quality wheather forecasts that leverage the collected data. For other scenarios things might be more complicated and the hurdle to give away more sensitive or more expensive to obtain data might be higher. And this is where monetary incentives could be useful or even enabling. In those scenarios the monetary aspect of Bitcoin could be at least part of a solution.

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